Aggregate Risk and the Choice between Cash and Lines of Credit

Banks can create liquidity for firms by pooling their idiosyncratic risks. As a result, bank lines of credit to firms with greater aggregate risk should be costlier and such firms opt for cash in spite of the incurred liquidity premium. We find empirical support for this novel theoretical insight. Firms with higher beta have a higher ratio of cash to credit lines and face greater costs on their lines. In times of heightened aggregate volatility, banks exposed to undrawn credit lines become riskier; bank credit lines feature fewer initiations, higher spreads, and shorter maturity; and, firms’ cash reserves rise.     

The Risk-Adjusted Cost of Financial Distress

Financial distress is more likely to happen in bad times. The present value of distress costs therefore depends on risk premia. We estimate this value using risk‐adjusted default probabilities derived from corporate bond spreads. For a BBB‐rated firm, our benchmark calculations show that the NPV of distress is 4.5% of predistress value. In contrast, a valuation that ignores risk premia generates an NPV of 1.4%. We show that marginal distress costs can be as large as the marginal tax benefits of debt derived by Graham (2000) . Thus, distress risk premia can help explain why firms appear to use debt conservatively.     

Employee Training in Australia: Evidence from AWIRS*

We use linked data for 13 991 employees and 1494 workplaces to analyse the incidence of employer‐provided training in Australia. We find potential experience, current job tenure, low education levels, skilled vocational training and part‐time or fixed‐term employment status are all associated with a lower probability of recent training. In contrast to studies for other countries, we find no evidence of discrimination on the basis of demographic characteristics in the provision of this job‐related training. Finally, and in support of recent non‐competitive training models, higher levels of wage compression are found to be positively related to a greater incidence of employee training.     

A Theory of Pyramidal Ownership and Family Business Groups

We provide a new rationale for pyramidal ownership in family business groups. A pyramid allows a family to access all retained earnings of a firm it already controls to set up a new firm, and to share the new firm's nondiverted payoff with shareholders of the original firm. Our model is consistent with recent evidence of a small separation between ownership and control in some pyramids, and can differentiate between pyramids and dual‐class shares, even when either method can achieve the same deviation from one share–one vote. Other predictions of the model are consistent with both systematic and anecdotal evidence.     

The Real Effects of Credit Ratings: The Sovereign Ceiling Channel

We show that sovereign debt impairments can have a significant effect on financial markets and real economies through a credit ratings channel. Specifically, we find that firms reduce their investment and reliance on credit markets due to a rising cost of debt capital following a sovereign rating downgrade. We identify these effects by exploiting exogenous variation in corporate ratings due to rating agencies' sovereign ceiling policies, which require that firms' ratings remain at or below the sovereign rating of their country of domicile.     

Internal Capital Markets in Business Groups: Evidence from the Asian Financial Crisis

This paper examines capital reallocation among firms in Korean business groups ( $chaebol$) in the aftermath of the 1997 Asian financial crisis, and the consequences of this capital reallocation for the investment and performance of $chaebol$ firms. We show that $chaebol$ transferred cash from low‐growth to high‐growth member firms, using cross‐firm equity investments. This capital reallocation allowed chaebol firms with greater investment opportunities to invest more than control firms after the crisis. These firms also showed higher profitability and lower declines in valuation than control firms following the crisis. Our results suggest that chaebol internal capital markets helped them mitigate the negative effects of the Asian crisis on investment and performance.     

Perception and Interpretation of Leisure Travel Articles

Limited attention has been paid to how readers perceive and interpret media messages about leisure travel experiences. This study examined college students' perceptions and interpretations of newspaper leisure travel articles revealing three central themes: intimacy and trust, tradition and authenticity, and socio-cultural knowledge. These themes are explored in order to understand the social justification of beliefs used by these college students when assigning meaning to leisure travel articles. Among the findings is the considerable role that leisure travel writers play as cultural intermediaries between local realities, readers, and future tourists. In particular, perception and interpretation of leisure travel articles revealed the expectations and shared meanings of these college students.